Moody’s downgrades Chinese economy for first time since 1989

Chinese flag and rigsChinese economy: Moody’s Investors Service yesterday downgraded China’s sovereign credit rating for the first time since 1989 and hours later followed up by cutting the ratings of 26 Chinese state-backed enterprises.
Among the affected companies were China Mobile, China National Offshore Oil Corporation and its finance arm, and China Petrochemical Corporation .The ratings of the firms, which are ultimately owned by the government, were revised down by one notch, partly because of “the rating or credit quality of government providing support”, it said.
China MobileThe Ministry of Finance immediately responded to Moody’s sovereign downgrade with a statement on its website saying the agency used “inappropriate” methods to overestimate the country’s economic difficulties “underestimated its ability to deepen structural reform and moderately expand overall demand.”
Moody’s downgrade in long-term local and foreign currency issuer ratings to A1 from Aa3 comes as the Chinese government grapples with the challenges of rising financial risks stemming from years of credit-fueled stimulus. “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” it said. 
But writing in the People’s Daily, Mei Xinyu, a researcher at China’s Ministry of Commerce, claimed that the sovereign downgrade overstated China’s reliance on stimulus and the country’s debt levels. China’s economic performance for the year so far had exceeded market expectations, he said, and went on to criticise Moody’s for including debt at state-owned enterprises (SOEs) and local government financing vehicles as indirect government liabilities.
Chinese streetsLast month China’s official growth figures revealed that the economy has started 2017 with its strongest quarterly performance in 18 months. on the back of a surge in industrial activity, property investment and credit growth. The country’s gross domestic product grew at an annual rate of 6.9% in Q1. Even at the time, however, analysts were voicing concerns. “This level of growth cannot be sustained,” warned Wang Xinling, lead analyst at the China Policy think tank. “The first quarter’s results were boosted by bank lending, and a peak in starts of long-term construction projects. After this, the indicators will start to weaken.”

Source: scmp